Why DeFi Hasn’t Lived Up to Promise

This is going to come off a bit different from the norm. Being a crypto-native scribe writing on DeFi, you would expect a prior lash on the inefficiencies of traditional finance, going into how decentralized finance is so much better and more efficient.

This is true in theory, but think about this: there’s a reason traditional finance, amidst all its downsides, has continued to persist for eons in society. It’s quite simple, really: security.

Banks and investment firms have comfortably built trust in their users and maintained a majority of their high-net-worth clientele since time immemorial, even after the advent of DeFi protocols with their juicy 70% APYs on liquidity pools and yield farming.

How do they achieve this?

- Regulation and Compliance: Traditional finance is heavily regulated by government authorities, providing oversight and consumer protection.

- Familiarity: Traditional finance systems have been around for so long that they are familiar to most people. Despite their modest 5-10% yearly interest rates, the majority of the population would still prefer the enemy they know to the friend they don’t.

On the contrary, DeFi, in theory, has the potential to revolutionize the financial system. However, it faces significant hurdles that hinder its growth. Beyond these mental barriers, the reality of DeFi's outcome since its inception seven years ago has been a rollercoaster.

Where DeFi has gone wrong

While DeFi can offer higher ROI potential, it comes at a cost. There is an invisible barrier to entry into this space. Properly maximizing earning potential on DeFi protocols requires a high level of trading/speculating skills and active participation.

In reality, not everyone (especially retail) can stare 12 hours at a screen in full degen mode as we can. Some people simply want to leave their money to accrue interest over time.

This brings us to the major issue with DeFi: security.

Security is a significant concern that hampers crypto adoption. Aside from the Luna debacle of 2022, there are frequent reports of hacks and rug pulls, undermining trust in DeFi and slowing its mass adoption.

So, is there any hope for our DeFi bags?

Possibly. It all boils down to reputability. Many protocols get lost in the unrealistic nature of the crypto space, jumping from one narrative to another solely driven by profit.

The solution lies in a reputable company led by a team with a skill set sufficient to interplay risk management and security in DeFi and, of course, autistic enough to actually be in it for the tech rather than chasing the next hot narrative.

As usual, we humble larps at the blocmates bring the best right to your doorstep, and today, we’re taking it up a notch with a team we’ve talked about in one of our previous articles: OATH Foundation.

As we already know, the OATH Foundation is a DeFi infrastructure builder that helps develop protocols across various networks. Powered by the Byte Masons team, OATH aims to advance DeFi by empowering teams that have a vision for a protocol but lack the expertise to build one.

By utilizing OATH’s architecture, these “partner” teams can seamlessly launch their products, referred to as OATH chapters. OATH Foundation boasts a suite of ecosystem protocols, including Reaper Farm, Digit, Ethos Reserve, and now its first official OATH Chapter, Aurelius Finance, all powered by the $OATH token.

Granary, on the other hand, is a cross-chain, user-driven borrowing and lending liquidity market inspired by Aave. Since its launch on Fantom in March 2022, Granary has grown exponentially.

The Granary team consulted with the Bytemasons regarding architecture and security, which was considered the first “unofficial” OATH chapter. The two teams have worked together ever since and have become intertwined.

Similar to OATH Foundation, Granary also boasts a suite of protocols, referred to as Silos (the Granary equivalent of chapters), including Ironclad, Harbor, and Yuzu, with more products to come in the future.

Within the GRAIN ecosystem, all protocols derive their power from the official token, $GRAIN. The token not only serves as a means of governance but also facilitates the distribution of rewards to users.

All this can get really confusing, I know. Building an ecosystem with a suite of protocols is really fun and innovative. It does solve a truckload of problems with liquidity fragmentation. Still, it gets confusing keeping up with these two separate ecosystems run by almost the same people.

Which brings us to our issue today: the need for unification.

What does the unification mean?

Think of this. You’re a 9-year-old kid, say, Barry, and you live in the suburbs with your grandma and sister Patricia. Patricia has this beautiful lemonade stand just right by your lawn where she sells lemonade, of course. You being a wiz kid, capitalize on this by selling cookies to go with her lemonade, but your stand is down on the opposite side of the street. Business runs well, and you and Patricia have these promo packages with cookies plus lemonade at a discount.

Still, there’s a minor hassle as your customers must move back and forth to get the cookies and lemonade. Being smart kids, you solve this problem by simply making a bigger stand, where you and Patricia can run the business together, considering you’re siblings and seamlessly run these discount packages.

This, in a sense, is what the unification is all about.

The teams at OATH Foundation and Granary are more than just sister companies. They’ve been working side by side for the longest time and, at this point, are basically run by the same people but focus on separate products.

A good example of the two working together is Aurelius Finance.

Aurelius is a stablecoin CDP lending market on Mantle and the first official OATH chapter from the OATH foundation.

Aurelius issues interest-free loans to borrowers using the $aUSD stablecoin. These interest-free loans are made possible via the OATH Foundation’s rehypothecation engine. Collateral deposited to take loans are rehypothecated to Granary’s vaults to earn yield, which is used to fund the system (hence the interest-free loans).

It can be difficult to split revenue with this innovative lending protocol. The product would need to support both $OATH and $GRAIN tokens (being a native OATH chapter but utilizing Granary’s vaults for yield earning).

Aside from this, feedback from the team says there were constant back and forths during deployment, having to go through due protocol on the part of both companies when, realistically, things could’ve moved faster if the pleasantries were skipped. The same goes for security, administration, and governance infrastructure.

So, the key benefit is that with the unification, everything is done twice as two teams can now be done once as one team, having all that extra time to do more.

The Unification: Overview

The unification underscores a pathway to unify OATH and GRAIN into one cohesive unit, a Modular Reserve Protocol, so the teams can concentrate on bringing value to one token instead of two.

Underlying Issues

• From a token perspective, accruing value from multiple systems to the same token, which is also being emitted to support another system (OATH), has been more inefficient than originally planned by the team.

This means using one token, OATH, to fund a suite of protocols despite their different product-market fit, which has made value capture a hassle. Some interactions would be detrimental to the users of one platform (Ethos Reserve, for example) but fine for the ecosystem as a whole. For example, increasing emissions on Aurelius would dilute users on Ethos Reserve.  

         2. As more protocols get rolled out by both teams in the form of chapters and/or silos, it becomes more difficult to communicate their value proposition to interested parties, i.e., foundations, VCs, and capital allocators looking to invest due to the complexity of their ecosystem from an external perspective. A single token simplifies the value proposition.  

3. Positioning: For foundations, onboarding reputable projects, especially mid-market projects, is a negative sum game.

The OATH Foundation is solving this problem by utilizing its expertise as a large team with upper-market service and skill sets in security and risk management to build smaller, retail-friendly projects across multiple networks. It has seen huge success and a lot of growth potential, but it isn’t properly positioned to fully capitalize on this growth. A single new token on a new chain allows for a fresh solution.

The unification of $OATH and $GRAIN will create a single token currently referred to as “NewToken.”

The birth of this NewToken comes with various organizational reforms, including:

A Unified Model

NewToken will serve as an index token for innovation and capture value from product releases from the unified foundation. It combines the value proposition of bOATH and GRAIN into a single simple solution.

Modularity in DeFi

Cutting right to the chase, this isn’t our regular talk about solving the blockchain trilemma or who’s going to win the data availability wars.

The unified foundation applies the Celestia and Dymension playbook to token standards, i.e., stake one, get all. Stake the NewToken and get rewards from everywhere.

NewToken will be the flagship ecosystem token, exposing users and holders to the full DeFi stack of OATH and Granary products. This means you stake one token (NewToken in this case) and get allocated tokens from every protocol deployed by the unified foundation. This includes rewards, yield, fees, and airdrops.

In addition, all upcoming chapters will have independent tokens that power their protocol, isolated from NewToken. This will isolate market and protocol performance from the main token while providing a single investable top-level token that gives access to everything, just like with Magpie Protocol.

Modular Reserve Protocol

The Modular Reserve Protocol is the technical implementation of a chapter. Aurelius is a modular reserve protocol, Ironclad is a modular reserve protocol, and more chapters will follow.

They are reserve protocols because they facilitate credit and money supply, and they are modular because the build of the code base and management allows you to plug and-play features while maintaining codebase security.

This allows teams to develop protocols tailored to each network’s specific needs swiftly and securely.

More on NewToken

Strategic value

OATH Chapters can generate X value to OATH holders, and GRAIN can generate Y value to GRAIN holders. However, when combined, the two can generate more than X+Y value, X * Y. That premise is at the core of the unification.

Base Chain

Ethereum— The Unified foundation will migrate from Optimism to ETH mainnet for multiple reasons.

Ethereum offers access to more trader and investor interest and volume. The majority of foundations and investors are more comfortable investing on mainnet and positioning here is key to exponential growth.

Ethereum being the base of operations whilst protocols are deployed on smaller chains puts them right at the sweet spot for ballistic growth.

Gas Considerations— You are probably asking yourself, what about increased gas fees?

The team aims to develop the most gas-efficient pathway for users, which is simply to stake the token for full access to product release and governance.

Super-Powered Governance

Governance on NewToken is basically governance on steroids. The unified system would carry forward the OATH governance model, considering OATH is more mature in this respect.

Stakers will be some of the heaviest-hitting governors in the business, capable of initiating new developments and protocol deployments with a single vote and reap the benefit.

Bicameral Governance: Their novel technology allows users to increase their governance power based on both time staked and tokens staked, creating a new paradigm for ecosystem management.

Tokenomics

Max supply: 100,000,000.

Tokenomics commensurate with OATH and GRAIN tokenomics, but in favor of OATH and GRAIN holders migrating.

Currently, 37% of OATH and 28% of GRAIN are in circulation, a ratio of 57:43.

As stated in the original governance proposal, check here

• 40% of NewToken supply would be allocated to the migration, such that the migration results in a net increase of circulating supply with users.

• 10% allocated to liquidity (targeting centralized exchanges to increase exposure)
• 20% allocated to LBP
• 30% allocated to strategic reserves and partnerships
• There is zero allocation to regular emissions/ inflation. Products will incentivize themselves, and Newtoken will focus on value aggregation and ecosystem governance.

Concluding thoughts

I’ve been doing a lot of research on OATH and Granary recently because of this article, and the team's transparency really struck something in me.

It's a no-brainer when they say their tech is miles ahead of the majority of their competitors, yet they admit to mistakes and shortcomings and learn from them. Not everyone can build in public; it shows resilience and true vision.The recipe has always been the same: bet on builders and transparency. Even if you have no idea what we’re talking about, this is a protocol you should look out for.